A sharp focus by the UK’s financial watchdog on the way asset managers pay for bank and broker research has led to efforts by an industry group to find ways to value the goods and services.

The CFA Society of the UK and Frost Consulting are partnering on a report that will lay out techniques the buyside can use to put a specific value on research.

The work comes weeks after the Financial Conduct Authority backed a call for an unbundling of research costs from dealing commissions in the EU’s Markets in Financial Instruments Directive II proposals. That means asset managers would have to be able to break down the actual cost of the research they receive.

The move by the two groups underscores efforts within the financial services industry to adapt to a more aggressive stance on dealing commissions from the UK regulator than its international counterparts.

The FCA has studied 17 fund managers in the past year, of which only two had dealing commission policies in place that it deemed satisfactory. In 11 of the firms, it said the amount of research purchased corresponded to trading volume and there were no research budgets or limits on spending.

Will Goodhart, chief executive of CFA Society of the UK, said valuing research was particularly challenging for fund managers because goods and services could hold different value for different firms.

He said: “It’s pretty tricky and it’s always going to be imperfect. What is important is that firms are clear with clients about the approach they are taking and that clients can then assess their preference for different valuations.”

The regulator estimated that dealing commissions in the UK are worth around £3 billion each year.

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One approach to valuing research would be cost-based, Goodhart said, and would involve determining how expensive it is for a provider to produce the research. Another would consider the value research generates for
a given fund manager.

The FCA also studied 13 brokers and said they did not “explicitly price their research as a distinct service, leading to price opacity in the market”.

This year the FCA explicitly banned the use of dealing commissions to pay for corporate access, meaning that fund managers have to use their money rather than client funds.

Financial News reported in May that asset managers subsequently asked banks to be able to pay as they go for such access.